Call this Satyam effect. A Finance Ministry-appointed panel has suggested that the Centre should establish a regulator to empanel auditors in different grades and randomly assign them to private sector firms.
The current audit system must be detached from management and control of the business, the Committee on Black Money, headed by the Central Board of Direct Taxes (CBDT) Chairman, has said.
If this recommendation is accepted, company shareholders or managements will have no say in the appointment of statutory auditors, say corporate observers.
The black money panel has also said that auditors should be randomly assigned to private sector firms, based on category and payment capacity, with mandatory rotation and maximum tenure of two years.
The committee was set up in May last year to examine ways to strengthen laws to curb generation of black money, its illegal transfer abroad and its recovery. The panel submitted its report to the Finance Ministry in March.
That the system of professional audit may be quite ineffective even in professionally managed enterprises is aptly demonstrated by the Satyam case, the Panel report said.
It has also recommended that the burden of dual audit should be reduced for single audit (for both company and tax law).
It observed that in the private sector, oversight was almost absent, except in some professionally-managed companies.
The panel’s recommendation to establish a regulator is in line with Securities and Exchange Board of India’s suggestion that a separate regulator or oversight board be set up to regulate auditors.
However, the CA Institute — the existing regulator — has so far opposed all suggestions for a new separate regulator. This professional body contends that it is proactive and bold enough to take action against erring members
The CA Institute has been criticised for its slack approach in taking disciplinary action against erring members and also those partnership firms that conduct deficient audits. There is no specific provision available in the law governing chartered accountants for sanctions against firms for deficient audits.
The Institute of Chartered Accountants of India has proposed to the Government that the law be amended to empower the CA Institute to decide and levy penalty in line with the nature of the misconduct. It has also been proposed that CA Institute should be empowered to take action against partnership firms and levy penalty on them.